Zimbabwe Becomes Beijing's First African Colony With Adoption Of Chinese Yuan

Tyler Durden's picture

To say that Zimbabwe has not had much luck with its monetary system experiments, would be an understatement.

After its disastrous adventures with hyperinflation denominated in its own currency...

 

... Zimbabwe decided to entirely abandon its reserve currency and shift to the dollar.

As we reported over the summer, the Zimbabwe Central bank completely "demonetized" the old Zimbabwe Dollar which would be removed as legal tender after the currency’s use was abandoned in 2009 following a surge in inflation to 500 billion percent. To do this, the bank would exchange up to 175 quadrillion Zimbabwe dollars for $5 US dollars, the country’s central bank said.

Which, as we admitted then, surprised us for three reasons.

First, as noted in 2011, in a stunning example of irony, Zimbabwe cult central banker Gideon Gono made it clear he wishes to avoid another episode of transplant currency hyperinflation courtesy of his counterpart in the Marriner Eccles building and "warned that Zimbabwe’s nascent economic recovery is at the mercy of the United States dollar, which is facing new pressures from the Euro-zone debt crisis." Yes, Zimbabwe was bashing the US Dollar.

Gono said Zimbabwe should in be looking to the Chinese yuan as its main currency, while urgently seeking to restore its own currency which was abandoned in 2009 after a dramatic loss of its value. Amusingly, he said that "with the continuous firming of the Chinese yuan, the US dollar is fast ceasing to be the world's reserve currency and the Euro-Zone debt crisis has made things even worse." And the terminal slap in the face of all that is American: "As a country, we still have the opportunity to avoid being caught napping by adopting the Chinese yuan as part of consolidating the country's look East policy."

Second, as further reported early in 2015, China decided to reciprocate Zimbabwe's diplomatic overtures, by taking a special interest in the south African nation bordering the gold and diamond rich Republic of South Africa. It did so by announcing it planned to set up a modern high-tech military base in Zimbabwe's diamond-rich Marange fields.

The news of the agreement to set up the first Chinese military airbase in Africa comes amid increasing bilateral cooperation between Zimbabwe and China – notably in mining, agriculture and preferential trade. China is the only country exempted from the indigenisation laws which force all foreign investors to cede 51% of their shareholding to carefully selected indigenous Zimbabweans.

 

China could be positioning itself for future “gunboat diplomacy” where its military presence would give it bargaining power against superpowers like the US. It would also be safeguarding its significant economic interests in Zimbabwe and the rest of Africa.

The third, and most important reason, is that according to leaked confidential Central Intelligence Organisation documents suggested that China had played a central role in retaining President Robert Mugabe in the country's most recent elections, indicating that high level military officers had worked closely with the local army in poll strategies while Beijing bankrolled the ruling party, Zanu (PF).

The new Chinese Ambassador to Zimbabwe, Lin Lin, recently said trade between the two countries last year exceeded the $1 billion mark. Yet Zimbabwe is only 26th on the list of China’s 58 biggest African trading partners.

 

The Asian country has supplied Zimbabwe with military hardware, including MIG jet fighters, tanks, armoured vehicles and rifles, since Independence. In other words, while nobody was looking, China just took over one more nation without spilling a drop of blood.

And then, on Monday, all of our confusion was laid to rest when Zimbabwe announced that this small, economically devastated country would officially make the Chinese Yuan its legal tender as it seeks to increase trade with Beijing. In exchange for becoming not only a military but also financial colony of China, $40 million of its debts to Beijing would be canceled.

China was delighted it cost it only a $40 million debt write off to acquire its first official African colony.

"They (China) said they are cancelling our debts that are maturing this year and we are in the process of finalising the debt instruments and calculating the debts," Minister Patrick Chinamasa said in a statement, cited by AP.

Chinamasa also announced that Zimbabwe will officially make the Chinese yuan legal tender as it seeks to increase trade with Beijing. It then started using a slew of foreign currencies, including the US dollar and the South African rand.

 

The yuan was later added to the basket of the foreign currencies, but its use had not been approved yet for public transactions in the market dominated by the greenback.

 

Use of the yuan "will be a function of trade between China and Zimbabwe and acceptability with customers in Zimbabwe," the minister said.

 

Zimbabwe's central bank chief John Mangudya was in negotiations with the People's Bank of China "to see whether we can enhance its usage here," said Chinamasa.

As the Star adds, "the Chinese are determined to make their currency as prestigious as possible and this is a cheap way for them to be able to claim that their currency is becoming more internationally accepted — it’s now legal tender in another country."

Adoption by a struggling economy has been a privilege previously reserved for the U.S. dollar, which is officially used by almost a dozen other countries. While the yuan circulates unofficially in some countries that neighbour China, Cohen said Zimbabwe’s official adoption is a major step toward making a claim to be on par with the dollar.

To be sure, there are problems which come with adopting foreign currencies over which one has no control, as Greece will eagerly admit:

But taking on a foreign currency is much easier than weaning yourself off it, Cohen said, pointing to Greece, which could benefit from being able to devalue its own currency to make their economy more competitive.

 

“Adopting a foreign currency can put a lid on hyperinflation,” he said. “But it’s very difficult to reverse the process.”

To be sure, Zimbabwe's handover of monetary and military sovereignty to China is not surprising: after all the world's most populous nation is the country's biggest trading partner following Zimbabwe's isolation by its former Western trading partners over Harare's human rights record. In reaction veteran President Robert Mugabe adopted a "look East policy", forging new alliances with eastern Asian countries and buttressing existing ones.

In early December, Chinese President Xi Jinping stopped over in Zimbabwe in a rare trip by a world leader to the country, and presided over the signing of various agreements, mainly to upgrade and rebuild Zimbabwe's infrastructure such as power stations. 

And while Zimbabwe may be the first official Chinese colony in Africa, it will hardly be its last. Recall that as we reported yesterday, the bulk of Africa's formerly prosperous if corrupt oil exporters have found themselves in a state of petrodollar collapse, and as the central banks of countries from Nigeria, to Angola, to Ethiopia, to Mozambqique scramble to defend their currencies and avoid hyperinflation, they have stopped the circulation of US dollars in their economies, leading to an accelerated economic collapse.

Which is great news for Beijing: once all these oil-rich economies unravel, who do you think will be just waiting there, ready to pick up the pieces and happy to provide these countries with generous servings of its own, recently SDR-ed currency?

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blabam's picture

They kicked out the white man.... now they bow to the Chinaman.

SoilMyselfRotten's picture

Looks like time for green shoots in Zimbabwe

localsavage's picture

Something tells me that immigration is going to be a one way street.

remain calm's picture

25 years from now this will be a brilliant move.

Latina Lover's picture

Brilliant move by China:  a super cheap way to learnhow to internationalize the Yuan

zeronetwork's picture

At the top (ultra rich or 0.01% american) or at the bottom (FSA or Zimbabwe) both are out of control. And in USA  or Zimbabwe middle class is being eliminated. wtf.

tmosley's picture

Is Zimbabwe going to allow some Chinese farmers to come in and unfuck their agriculture industry?

Will the Chinese force them to end their policy of white genocide?

tarabel's picture

 

 

Not force them to end it, but rather provide an alternative target for their ire once Uncle Xi's largesse thins out and his segregationist-minded minions wear out their welcome.

Arnold's picture

So.....semi long Monsanto in Black Africa divisions?

7.62x54r's picture

Only if the PRC buys up Monsanto for their intellectual property.

Buckaroo Banzai's picture

The difference is, when the black man starts to kill the yellow man in Zimbabwe, the Chinese military will invade (covertly, then overtly) and simply exterminate the blacks wholesale.

They will keep it out of the news until the process is well along. Eventually the western media will discover what is happening-- only because it will be too obvious to ignore-- and will engage in the usual hand-wringing exercises. China will be "strongly condemned", and economic sanctions will be bruited for a little while.

Then the matter will be forgotten.

Oracle 911's picture

To all of you:

Nope. The Chinese will simply starve them to death. It is more clear (less dirty) way.

IMHO, the Chinese will avoid situations where they have be go rough. This means no Chinese farmers on African soil.

7.62x54r's picture

I disagree. Zimbabwe's agriculture is on the rocks since they kicked the Rhodesians out.

They will send in ag experts, who will become plantation owners. The PRC military and their new sepoys will keep the natives in line.

jerry_theking_lawler's picture

If this works out...can we invite them to the US next??

zeronetwork's picture

I say NO. Zimbabwe will be a factory for china with out any rules and safety regulations for the next 25 years.

TRM's picture

Chinese factories have safety regs? Wow. I didn't know. Next you'll be telling me they don't use forced labour.  /nosarc

Overfed's picture

Chinamasa. China Masa. Awesome.

7.62x54r's picture

I saw that too.

The Onion merely immitates real life.

Save_America1st's picture

hmmmm...I guess my comment from yesterday's article about Africa running out of dollars was a close call. 

http://www.zerohedge.com/news/2015-12-23/dollar-shortage-has-arrived-afr...

 

..."I guess these countries are too scared that the Freedom Bombs would reign down upon them like in Libya, Syria, Iraq, etc. if they ever decided to kick the fucking central banksters out and started using a sound monetary system, ay? 

I wonder if China will be willing to defend these countries militarily at some point as they expand the yuan throughout Africa and eventually back it with a percentage of their huge gold stash?"

 

7.62x54r's picture

China has an endless supply of boots on the ground. Bomb all you want, they'll make more.

tarabel's picture

 

 

PAYING economic powerhouse Zimbabwe to use it is a super cheap way of internationalization?

And it is not an exclusive franchise. The USD and ZAR are in that club FOR FREE.

StychoKiller's picture

Mugabe, you are a cheap whore!  Allow me to repeat that:  Mugabe, you are a CHEAP WHORE!

Arnold's picture

The chinks have been working the Black Africa for quite some time.

Whether they end up in the Dutch/ French/ Belgian/ German/ British colony quagmire will be interesting to watch.

power steering's picture

You use the word "chinks" for Chinese why not use the equal pejorative for "the black africa"?

Arnold's picture

It's Kwanzaa.

 

http://www.officialkwanzaawebsite.org/index.shtml

 

I thought that Black Africa was a pejorative.

And according to their history, The Chinese peoples are ChiCom in name only.

Dubaibanker's picture

I mentioned this on 16 Nov here at ZH........http://www.zerohedge.com/news/2015-11-15/imf-greenlights-addition-chines...

Zimbabwe already had multiple currebcies but now it is kind of formalising the yuan and is relieving the USD from such a heavy responsibility! :) (rather kicking the USD out as 2015 slides into history).

USD is losing a battle worldwide from Angola to Russia to Iran to Zimbabwe to Venezuela and many more nations who are choosing the yuan and dropping the USD for trade, reserves, investments etc!

The main decision has to be made by Saudi/OPEC and that day should come any time (sooner they do it, better it will be for them, because at least they will get to keep their reserves else in 2 years the reserves will be gone and the currency will need to be depegged from the USD anyways) who have to choose yuan instead of USD for sale of oil!

I predict this to occur latest within 2 years but ideally should be done immediately if the Govts of oil producing nations will listen to my advice!

I dislike the headline of this post. Zimbabwe does not become a Chinese colony. It is the way of the future as China ascends the global throne. Does it mean that Tanzania and Iraq and so many others (almost the entire world) uses USD so they are US colonies? 

No, this is a way of life. People and countries use whatever is easy and useful for others to accept.

It is like, people use Skype as most common denominator to talk online because not everyone has Viber, IMO, Talkray, Facetime. Line etc. Hence Skype is used because maximum number of people use it so it is convenient and hence creates additional demand. Currency is the same. whatever is most convenient, people will use the same. 

Now USD is losing it's lustre and the new tool (yuan) instead of letters, email, then Skype..... is coming to life!

StychoKiller's picture

Hmm, so yer saying there's no future in BetaMax™?!

Max Steel's picture

But what do you think about Yuan role as reserve ? I mean we've all seen mckinsey and goldman sachs report showing Trade settlement will be increasing in Yuan year after year but after Yuan's inclsuion in SDR , yuan role as reserves is nowhere. Till date only 2% of reserves are being kept in Yuan by i don't know how many countries but meanwhile US dollar is kept as reserve by more than 130 nations. Your thoughts ?

Dubaibanker's picture

Hi Max,

Reserve curency is nice to have not a must have. It is a consequence of the demand for yuan itself.

Trade and investment opportunities and free flows determine who is strong and stable due to higher demand (as I explained above about Skype) that is more important. Reserves become an outcome of the above.

For example, if a person in Brazil or Nigeria needs to make a remittance in Yuan to China for payment then he/she will approach the bank in their country who must have the infrastructure and mechanisms to open an account for that client. After a/c is operational, the bank must have the capability through their central bank to exchange into yuan from their local currency into yuan (for which only their Central bank holding yuan is very important not the central bank of another country) and then finally to arrange that remittance to China.

This infrastructure is being put into place and close to 100 countries are able to do it except US.

At this point over 60 countries hold yuan in reserves as this infrastructure is put into place and trade continues to rise. http://uk.reuters.com/article/us-markets-forex-yuan-idUKKBN0LT1V02015022...

It does not matter what the 3% settlement in global terms is. What matters is that how much trade with China is being settled in yuan. That number is now reaching close to 50% (my estimate is between 35-40% in 2015. http://uk.reuters.com/article/uk-china-yuan-offshore-idUKKBN0MM0EL201503...

Because yuan settlement cannot YET be done between say Saudi and South Africa for their trade. Once the demand for yuan is global, then these 2 countries could also accept yuan. This is what I am waiting for, when Saudi/OPEC start to accept yuan in lieu of oil.

Trade underpins demand for yuan, next step is setting up a settlement system which is also being rapidly put into place, as settlements and reserves and thus demand for yuan rises, the reserves wil also follow automatically.

Yuan's rise will be gradual every year not a rapid ascent. It has been happening for the last 10 years and will slowly increase over the next 10 years as more and more countries are forced (not by China but by the reality that the yuan is acceptable for trade and oil and such by so many countries due to fundamental demand) to hold more and more yuan every passing day/month/year.

SILVERGEDDON's picture

Art imitates life.

Countdown to the hundred trillion yuan note in 5.....4.....3......2.....1.....

MissCellany's picture

Funny...something keeps bringing "Confessions of an Economic Hitman" to mind.

chicmagnet's picture

I don't get it? The blacks despise the Chinks more than Uncle Tom. I do not see this playing out well for China.

OregonGrown's picture

Hey.... didnt USA do that to puerto rico and guam?

silverer's picture

Yes.  But I think Puerto Rico is about to do it back.

juicy_bananas's picture

Looks like Zimbabwe suddenly needs some FREEDOM.

 

https://www.youtube.com/watch?v=7R5A0pg4oN8

silverer's picture

People of Zimbabwe!  You lost your country due to your leader!  You were given no choice to where your country was led!  But do not feel like you have failed.  How can you feel like you did well?  Just look west to the US.  The definition of irony.

Make_Mine_A_Double's picture

Oh boy, are they are ever going to be pining away for Ian Smith.

As I recall old Bob Mugabe had already signed over like 90% of arable land to Qudaffi in exchange for oil supplies.

 

 

Ghost of PartysOver's picture

I think Hitlery cancelled that deal with a very peaceful and well thought out diplomatic assassination.

kliguy38's picture

 1) Gold

2) Bitcoin

BiPolarFrenchman's picture

Both is right.  I'm more heavily invested in the historical value storage, but BitCoin is a lot easier to spend online and serves a similar, albeit not proven, function.  

Kirk2NCC1701's picture

Horses for courses.  Tools in a toolbox.  Clothes for the weather.

Bring the Gold's picture

It seems to me they represent different things. If you are staying put in a country you want PMs. If you plan on speculating or fleeing your current country you want bit coins which I personally would sell once I got to my final destination to buy PMs until such time as sanity and rule of law returns. Since that last one could be awhile my third investment strategy is crates of Snickers bars.

StychoKiller's picture

Meh, booze ages better than Snickers™ candy!

JamaicaJim's picture

Nice roster.

China

Tibet (by force)

Now Ebony Inflationland

....super